Daytrading 2.1 for small traders (the complete method)

[Ucan'tEatBonds]

There is a lot here, I am gonna bookmark it and take it slow.

 

[GiantDog]

First, I think the straight line guys should stay out of this thread otherwise they will be looked at as being trolls. It works both ways you know. LOL

And as far as jumping on NoDoji because she has a more "complex" trading method, this is just plain wrong. All she is saying is she has more entries and exits than the one talked about by Ironfist. I don't know why anyone can't see this. People are so into themselves and into their own trading methods they think everyone else is wrong.

A simpler plan is no more better than a plan with more entries and exits. It depends on who is trading it and how good of a trader they are.

 

[dbphoenix]

First, I think the straight line guys should stay out of this thread otherwise they will be looked at as being trolls. It works both ways you know. LOL

I'm not aware of anyone having brought it up. The OP said that

A common criticism is "using MA's to determine your entry and exit will be too slow and cause you to miss part of the move." That is absolutely true. However, I cannot identify HLs and LHs in real time, so I had to use MA's. If you can do it in real time then definitely do it that way as your performance will be better. A method for identifying them in real time was never shared in jjrvat's thread, and I was unable to come up with my own method, so I used an HMA instead.

the implication being that he'd rather be able to identify HLs and LHs in real time than fool with MAs, which is why I asked what I did after his first post. There are ways of identifying HLs and LHs without using "straight lines". But if one would rather use MAs, who cares as long as he's (a) consistently profitable and (b) taking as much out of the market as the market is willing to give?

It's all good.

 

[Schaefer]

..............A simpler plan is no more better than a plan with more entries and exits. It depends on who is trading it and how good of a trader they are.

Reminds me of the quote, "Everything should be made as simple as possible, but not simpler".

Schaefer

 

[NoDoji]

With regard to the comment "Complexity is not a synonym of profitability, far from it."

In my case, the additional complexity simply reduces losses and increases the number of trades. I have multiple entry methods as well as a set of break even exit strategies under certain conditions.

I have an automated system that's about as simple as the OP's method, but it doesn't catch as many trades and doesn't have break even exit strategies in place at this time.

As for chop, the fast/slow EMA strategy alerts me to a high probability of chop/range conditions in advance.

 

[IronFist]

You've done a fine job providing the shortcomings of MAs, so the question appears to be whether you'd be better off finding a way of making them work or finding a way of identifying HLs and LHs in real time (in which case you could just drop the MAs). With regard to the latter, what is it that you're not seeing in real time?

I can't identify HLs and LHs in real time because there is no way to know until after the fact that it was a HL and not a reversal.

 

[Slope Trader]

Jjrvat never talked about when to exit. He was a scalper and targeted between 1-10 ticks per trade. I was never able to wrap my head around that. One to 10 ticks? How do you know when to stop at 1 tick? How do you know when to stop at 2, or 3, or 10? How long do you hold onto losers for?

For my version of this method, I held every trade as long as possible. Backtesting with fixed scalp targets of 1, 3, 5, 8, 10, and 12 ticks resulted in more winning trades but overall losses.

The only way I was able to test profitably during the time I used this system was by holding every trade until the slope of the MA changed. This results in occasional homeruns which were necessary to maintain profitability.

I am very interested in discussing other exit strategies.

Hi Ironfist,

I have a couple of thoughts. I do manual backtesting from charts and this seems like a nice puzzle that you’ve presented. The question is: without being rigorously quantitative yet, can suggestions be made that will improve the performance of trades in the 4 charts shown in the first post?

The current system for long trades as I understand it is shown below. Rules are reversed for short trades.

An initial stop-loss wasn’t given, but to judge the system properly one would need to set a rule for this. My initial suggested changes for long trades, shown as System 1b, are to
(a) enter using a buy stop order 1 or 2 ticks above the high of the signal bar (this will eliminate some losing trades),
(b) only place the order if the signal bar has a close that is in the top half of the bar (meaning it has a “strong forward close”; requiring the close to be in the top third of the bar could also be considered), and
(c) place the initial stop-loss below the low of the signal bar or the bar that precedes it, whichever is lower.

System 1
Go long when:
- slow MA (240 WMA) is sloping up
- fast MA (21 HMA) is sloping up
- price has made at least one HH and HL (a DB will also be an entry signal, basically you are looking for price to not make a LL)
- entry is on the open of the bar after the signal bar (check this)
- initial stop-loss is located at _____ (not clear)
- exit when the fast MA reverses its slope

System 1b
Go long when:
- slow MA (240 WMA) is sloping up
- fast MA (21 HMA) is sloping up
- price has made at least one HH and HL (a DB will also be an entry signal, basically you are looking for price to not make a LL)
- the close of the signal bar is in the top half of the bar (wait for a bar like this before entering)
- enter with a buy stop order 1 or 2 ticks above the high of the signal bar
- initial stop-loss is located below the low of the signal bar or the bar that precedes it, whichever is lower.
- exit when the fast MA reverses its slope


Focusing on the trades pointed out in the 4 charts that meet the entry requirements, and using only qualitative assessments at this stage, the results are shown below.

System 1b -
Chart 1: win, scratch, small loss, win, win (4 longs and then a short trade that met the rules)
Chart 2: small loss, win, small loss, win, win, win, small loss (all trades are long)
Chart 3: scratch, win, no trade (the sell stop order wasn’t hit), small loss, small loss, win, win, no trade (sell stop order not hit), loss
Chart 4: loss, scratch, win, win, small loss, win, small loss,

Net: 13 wins, 10 losses, 3 scratch trades

I really like this type of system because all of the losses are small and the wins are a mixture of small, medium and large gains. The number of wins was over 50% and the average win was bigger than the average loss.

One would need to backtest many more trades and be more quantitative about exact entries and exits to evaluate it properly, but this looks like a promising approach.

An example of 2 losing trades that were avoided using the new rules is shown below:

 

[Handle123]

The major downfall of all MA based systems are the "chop", or "range bound" price action. I too, use the price swings to stay in sync with the long term MA. You're right, sometimes it's hard to see the swings in real time, except on the trendiest of the days. I use candlestick analysis to gauge supply/demand, momentum, and micro trend lines to identify the swing points.

Hope to read some more of your findings.

I have tested hundreds of moving average systems, and what I have come up, a moving average is no different than a trendline, some show good stopping and others not so much. The Hull is by far in my backtesting of what I was testing to be one of the worst of the averages as it turns after the fact too fast which always means way too many trades and too many losses. I have found slower EMAs work best for me, I want that lag so it won't allow me to take the very iffy trades.

Trading will always come down to skills you learn with what you are using whether EMAs, trendlines, price action, indicators or combo.

Money management(where the profits are at), for myself, based on times of the day(3 sessions), volatality, when a signal should not be taken, when a signal showing to double up contracts, how long till you either take profit- go to breakeven- make new target breakeven, what is price action saying, what is ten day average of day session range, where are we at in this range, what is volume showing, whats the DOME showing to not take a trade or when to go for extended profits, where are trendlines on 60 minute/daily/weekly charts?

I am a scalper, so 90% are targets of $100 in almost all instruments in futures, doesn't test out well for me to make larger targets over long run, am not a homerun trader for day trading under 60 minute timeframe-leave that for long term trading of stocks and commodities. The more trades you take means you have to be going for smaller and smaller targets, less trading will allow you to go for 1-2 of the bigger moves a day if you can read the price action and sit on your hands.

One of the biggest problems of using TA, those who try to use it have no clue of Pro's and Con's of the indicator they trying to use. Just watch it for a month and only it, find what it is doing and why. Too many people don't have clue what the price action is doing and why, by studying more of the whys, you can understand more of how to make consistent profits. I always keep a one minute chart and cram as many bars into a smaller chart and you can see the swings better.

 

[TheRumpledOne]

Wow!

What a blast from the past.

Thanks for the memories.

 

[dbphoenix]

I can't identify HLs and LHs in real time because there is no way to know until after the fact that it was a HL and not a reversal.

A higher low leads to a reversal. That's pretty much the point. It can, however, fail and lead to a lower low, but that depends largely on the context.

If you're interested in trading without indicators, you may want to look at this.